Subordinated Debt - Explained
What is Subordinated Debt?
Written by Jason Gordon
Updated at April 8th, 2023
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
- Courses
What is a Subordinated Debt?
A subordinated debt or subordinated loan is a loan or security which is prioritized lower than other loans or securities on the occasions of bankruptcy or liquidation. That means, if the borrower defaults or is insolvent, the subordinated debt holders will be paid after senior debt holders are repaid fully. This is also known as junior security or junior debt.
Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY
How Does Subordinated Debt Work?
Subordinated debts can both be secured or unsecured. It is riskier than other debts as on an occasion of liquidation, the subordinated debt holder is paid last. That is, they are paid after the full repayment of all other corporate debts and loans.
When a company files for its bankruptcy the court directs the company to prioritize all debt repayments. The unsubordinated debt holders/bondholders are paid first. After fully satisfying their debts, if there are still assets left, the subordinated debt holders are paid.
The subordinated bondholders may be paid partially or fully depending on the amount of assets left. The subordinated debt holders are paid just before the equity holders.
Related Topics
- Bankruptcy Law (Intro)
- What is Bankruptcy?
- Insolvency - Definition
- What are the types of business bankruptcy?
- Chapter 9 Bankruptcy
- Chapter 12 Bankruptcy
- Chapter 15 Bankruptcy
- Who are the participants in the bankruptcy process?
- Key concepts behind the bankruptcy process?
- Absolute Priority Rule
- Pari Passu
- What rules govern the bankruptcy process?
- Bankruptcy Abuse Prevention and Consumer Protection Act
- American Bankruptcy Institute Definition
- What the authority of the bankruptcy court?
- What is the authority of the trustee (debtor in possession) in bankruptcy?
- Debtor in Possession
- What assets of the debtor are included in the bankruptcy estate?
- Bulk Sales Law
- What is the automatic stay in bankruptcy?
- What is a claim by creditors of the bankruptcy estate?
- What is voluntary and involuntary bankruptcy?
- What is the Chapter 7 bankruptcy process?
- What is the Chapter 11 bankruptcy process?
- How to File Bankruptcy for a Business
- Accept or reject contracts?
- Avoiding powers?
- Stay of Proceeding?
- Use of Business Assets?
- Post-Petition Financing?
- Bankruptcy Financing - Definition
- What is the appointment of a Trustee or Examiner in business bankruptcies?
- What is a Plan of Reorganization?
- Reorganization - Definition
- Subordinated Debt
- Preferred Debt
- What is Cramdown of a reorganization plan?
- To what extent does the bankruptcy process relieve a debtor's debts?